Hold on to your hats, tech enthusiasts, because Goldman Sachs just threw a curveball in the ongoing story of creative AI. In its latest report, the investment powerhouse appears to have changed its tone from cautious optimism to a more skeptical view of the immediate benefits of AI investment.
The global investment banking firm's June 2024 report, “General AI: Too Much Cost, Too Little Benefit?” Provides a reality check for those accelerating on AI. Despite the tech industry's excitement and the staggering $1 trillion predicted to be spent on AI infrastructure, the report highlights a sobering view from MIT's Daron Acemoglu and Goldman Sachs' own Jim Covello.
Acemoglu estimates that AI will automate less than 5% of jobs over the next decade, contributing 0.9% to GDP growth. Covello goes even further, arguing that current AI tech isn't equipped to solve complex problems cost-effectively — at least not worth a $1 trillion investment.
“AI bulls just trust that as the technology evolves, the use cases will grow,” he said in an interview regarding the report, but eighteen months after creative AI was introduced to the world, No one is going to make a real difference. -Effective – The request has been received.”
Photo: Goldman Sachs
For Jim Covello, this problem bears some resemblance to the dot-com bubble (and to us, crypto). However, the impact of a future AI winter will depend on the actual use cases the technology can offer.
“If AI technology has fewer use cases and less adoption than consensus expects, it's hard to imagine. [a bust of the AI bubble] “That won't be a problem for many companies spending on technology today,” he said.
Covello believes the AI hype could last another 18 months before investors start to lose interest due to a lack of real progress.
This issue of markets being in a bubble has been touched on before by major voices within the AI community. Just over a year ago, Imad Mossadegh, now the former CEO of Stability AI, warned about generative AI as an overused technology. “I think this will be the biggest bubble ever,” Mustaq said in a call with UBS analysts. “I call it the 'dot AI' bubble, and it hasn't even started yet.”
But there is also room for some long-term upside. Rish Rangan, an American software analyst quoted in this report, argues that AI companies today are laying the foundations for the next generation of profitable industry.
“The AI cycle is still very much in the infrastructure building phase, so it will take longer to find the killer application, but I believe we will get there,” Rangan said. That said, he's not too bullish on the short-term and also believes the clock is ticking for AI launches.
“If the number of customer requests does not increase in the next 6 to 18 months, I may be more concerned,” he added.
Profit is in the eye of the beholder.
Contrast that with Goldman Sachs' May 2024 report, which, despite its cautious tone, was practically lyrical about AI's potential. The report, led by Joseph Briggs, predicts that generative AI will ultimately increase US productivity by 9 percent and GDP by 6.1 percent over ten years. He painted a rosy picture of AI laying the foundation for future efficiency gains and economic growth, emphasizing early positive signs of AI adoption in specific sectors.
“Early indications of future productivity potential look very, very positive,” Briggs wrote. The report points out that generative AI, if proven profitable, will start having a meaningful impact on the economy in 2027.
It was also echoing JP Morgan's view of the entire AI industry, which said, “Wall Street believes today's AI leaders will deliver better earnings growth than dotcom leaders expect, even That AI stocks trade at very low valuations such as P/E ratios.
Photo: JP Morgan
For JP Morgan, AI could have a big impact in industries like logistics or finance, in what he called the transition to “AI 2.0”.
So, why the sudden change in tune? The June report identified high costs, slow speeds, and significant infrastructure challenges that could hold back AI growth.
According to Stanford University, private investment in generative AI reached more than $20 billion last year, but that investment has declined significantly in 2024, with Ernst and Young estimating that about $12 billion will go into AI this year. will
Photo: Ernst & Young
Not surprisingly, analysts are expecting to see a downward correction in AI-related equities. So, bubble or not, most forecasters indicate that the AI market is slowing down.
The next few quarters will likely be crucial in determining whether creative AI can live up to its promises, or if the industry is indeed headed for a cooling off. That could leave many high-powered GPUs—once critical to generative AI startups for creating all those cute cat photos and anime waifus—as markets readjust their expectations.